OEMs and suppliers need to innovate together

The Germany-headquartered Freudenberg is a global technology group that lays emphasis on strong company values. Serving Indian customers since 1920, Freudenberg Group has been catering to the needs of sectors such as automotive, energy and chemical, medical and pharmaceutical, textile, clothing, mechanical and plant engineering, etc. As the Regional Representative India and Head of Freudenberg Regional Corporate Center India, Georg Graf acts like an extended arm of the headquarters in India. In conversation with Rakesh Rao, he explains trends in the industry, importance of values for businesses and the growth plans of the company for India.

Kindly take us through the businesses and products offered by Freudenberg Group.

Freudenberg, founded as a tannery in 1849, is a family-owned diversified group of companies. Freudenberg is a values-based technology group that best serves its customers and society. Innovation is in the DNA of the company, which believes in innovating together (with customers, suppliers and people). We are good at developing lasting solutions for our customer based on technology and values. Freudenberg offers its customers innovative solutions in sectors such as automotive, chemical, oil and gas, energy, construction, medical, etc.

Globally, Freudenberg Group spends about 4.5 per cent of sales revenues in R&D and about 30 per cent of our revenues come from new products (which are younger than four years).

In 2016, the Freudenberg Group employed more than 48,000 people in almost 60 countries worldwide and generated sales of approximately 8.6 billion euros. Freudenberg operates under 11 business groups globally, out of which seven groups are doing business in India.

Freudenberg has been serving Indian customers since 1920 and today it has 30 production sites in the country, employing over 3000 people. We have been growing at 20 per cent annually in the last five years in India. We have been making products in India much before the Make in India campaign was announced. We never looked at India as an off-shore manufacturing base. We produce quality products and our objective in India is long-term. There is no compromise on quality, compliance and values.

Of various products manufactured, which is the major contributor to revenues in India?

Freudenberg is known for sealing technologies and we are market leaders in all the niche areas that we operate in. Sealing technologies - which are used across the industries such as automotives, power plants, wind energy, construction, etc - account for about half of our business. Other products such as lubricants (which give lot of efficiency), filters, performance materials, etc also make major contribution to business.

How do you view India as potential market for Freudenberg Group?

India, with more than 600 million people under 25 years of age, offers huge market for Freudenberg Group. Thirteen companies (representing seven business groups) are present in India with production centres, sales and service offices as well as research and development centers. Freudenberg serves most industries in India including automotive, energy and chemical, medical and pharmaceutical, textile, clothing, mechanical and plant engineering as well as consumer markets.

To further strengthen its position in India, Freudenberg opened its Freudenberg Regional Corporate Center in Bangalore in 2013. The corporate centre acts as a key intermediary and shares important know-how across operating organisations in India.

How is the demand for your products from automotive sector?

The company is an accepted partner in the automotive industry. While automotive accounts for 40 per cent of our global revenues, in India about 60 per cent of revenues come from automotive (with general industries accounting for the rest).

We partner automotive industry for developing technologies and products to solve new challenges. With electromobility gaining traction worldwide, OEMs are demanding new products from suppliers for their electric vehicles (EVs). Electromobility is not a revolution, but an evolution. To meet electromobility requirements, we will have to rethink about our processes, business models and we have to move much faster.

Auto OEMs trust suppliers who have in-depth knowledge about products and processes, and hence they partner with us because of our experience in using global technological know-how to meet local needs.

In May 2017, Freudenberg Group announced investment of Euro 15 million for a new production facility in Chennai. How has been the progress on this front?

Construction work is currently in full swing. We expect to open the plant by the end of this year and begin production by the start of 2019. The plant will produce oil sealing solutions to cater to the booming automotive industry in India.

How is Freudenberg preparing for new opportunities in automotive industry - such as electric vehicles, stringent emission norms (BS VI by 2020)?

New technological requirements and regulatory changes will trigger demand for new, innovative products. Being producer of innovative, niche products, we are also happy if technological requirements turn from commodity to specialty.

In automotives, the company provides a wide range of products such as sealing, battery, filtration, cooling systems, lubricants, vibration control etc for internal combustion engines.

Some of our products such as battery products can also be used in electric vehicles. While we will continue to develop products to make combustion engines more efficient, we are making significant investment in developing components for electric vehicles.

Emission norms are getting stringent across the world. This means our low emission sealing solutions will continue to play a major role in conventional powertrains.

As automotive industry move towards electric engine, hybrids (which have an electric powertrain as well as a combustion engine) will gain in demand. This will boost demand for number of our seals. For electromobility, we have already developed solutions, such as frame seals for batteries.

In the last couple of years, electromobility has shown rapid growth in demand globally as governments are framing policies to encourage EVs production. Industry and suppliers need to learn to listen to customers (OEMs) and innovate together.

Each region (urban and rural) and segment (public and private transportation) will react differently to e-mobility. For example, electric vehicles are expected to come into play in urban areas sooner, while efficient internal combustion engines will remain relevant for rural areas.

In India, it is not just about technology but also about society. Four-wheeler is still viewed as status symbol first, then a requirement. At the same time, shared mobility has made vehicle on demand a possibility. Hence, one need not necessarily own a vehicle to enjoy its benefit. All these changes will have an impact on vehicle design, components, procurement process, etc.

How are you preparing for the changes?

Demand is driving the supply. We can be successful only if we work closely with the customers. The entire industry is changing and issues such as quality, safety, etc are gaining preferences.

First we have to understand the need of the customer and then find suitable products that can go into mass production. There are lots of start-ups that are working on solutions for auto industry. We are also working with some of them.

What are your growth plans in India? Are you looking at exports opportunity from India?

Globally, Freudenberg had undertaken a project which examined business opportunities for the company in 2050. The project findings, which are now being integrated in the strategy process, will culminate in long-term innovation initiatives.

We are long-term oriented company. Today, Freudenberg in India encompasses seven business groups with multiple businesses. In the coming years, we plan to launch business groups, which are presently not in India, in the country. We develop and manufacture products in India for the domestic as well as other neighbouring countries.

In India, urbanisation, water and waste management and mobility will be the key for growth. We have a big presence in automotive industry and intend to grow stronger in this sector.

We will continue to strengthen our market position by making in India for India our highest priority.

In the last couple of years, electromobility has shown rapid growth in demand globally as governments are framing policies to encourage EVs production. Industry and suppliers need to learn to listen to customers (OEMs) and innovate together.